Renewable Energy Tax Incentives And Their Support For Sustainable Investments – Disclaimer: This website provides an overview of federal income tax and production tax credits for businesses, nonprofits, and other entities that own solar facilities, including photovoltaic (PV) and focus on thermal power generation (CSP) technologies. It does not constitute professional tax advice or other professional financial advice and may be subject to change based on other guidance from the Fund. It should not be used as the sole source of information in purchasing decisions, investment decisions, tax decisions or in implementing other binding agreements.

Solar PV panels on top of the Tulsa Central Library in downtown Tulsa, Oklahoma. Photo by Jared Heidemann.

Renewable Energy Tax Incentives And Their Support For Sustainable Investments

There are two tax credits available to businesses and other entities, such as nonprofits and local and state governments, that purchase solar systems (see the Federal Solar Photovoltaic Tax Credit Guide Homeowner’s Guide for personal information):

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Generally, project owners cannot claim ITC and PTC on the same property, although they can claim different credits for shared systems such as solar and storage, based on IRS guidance. Other types of renewable and storage technologies are also possible for ITC, but are beyond the scope of this website.

Solar systems operating on or after 2022 and beginning construction before 2033 are eligible for the 30% ITC or 2.75¢/kWh[3] PTC if the proposed performance requirements are met by the Department of Finance[4] or less than 1 megawatt. (MW)[5].

ITC is a traditional tax credit that does not change the performance of the system, while PTC can provide attractive income as tax credits are earned over time. Choosing ITC or PTC depends largely on the cost of the project, the amount of time available and the availability of income tax credits. See the sample calculation below.

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In general, large PV projects will be more valuable if they choose PTC in sunny areas, but projects in less sunny areas will have higher installation costs or to income tax receipts will benefit from the ITC.

Smaller PV and CSP projects can be more valuable using the ITC, especially since they can take advantage of low-income financing that is not available with the PTC. However, as the cost of installed PV systems and CSPs decrease over time (or become more efficient), PTC becomes more attractive to all sectors.

While the PTC is calculated based on the electricity generated by the system, the ITC is calculated based on the cost of building the system, so understanding what expenses can be included is important to determine the amount of tax credit due for a system. .

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To calculate the ITC, you multiply the applicable percentage of the tax liability by the “taxable base” or the amount spent on the relevant property. Eligible assets include:

There is usually no cost to install a roof, except for inflation fees or the money you would have spent if the roof was not used for solar purposes.[11] These costs may include solar shading, solar panels, or the additional cost of installing a reflective roof membrane to increase energy production.

Structures housing a solar PV system may be subject to the ITC if the solar PV system is built with the primary purpose of generating electricity and other uses of the structure are common.[12] Although manufacturing components are not subject to the ITC, the IRS has stated that there is an exemption for components that are “essentially manufactured as a substantial part of the machinery or equipment in operation.” [13] – Therefore, integrated PV, such as solar windows, stones or foundations, provide the necessary dual functions for ITC.

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Projects that begin construction before January 31, 2023 to qualify for the full ITC and PTC must meet the Department of Revenue’s performance requirements: all construction, renovation and repair costs—in years the first five years of the ITC program and the first ten years. of the program for PTC – must be paid at the current rates in the designated area.[14] In addition, some of the hours of project-based construction work must be completed by the student. The percentage will increase over time, starting at 10% for projects that begin construction in 2022, 12.5% for projects that begin construction in 2023, and 15% for projects starting after 2023.

Programs can address overpayment requirements if they are not met in the first place by paying the difference in wages and interest to affected workers and paying $5,000 in compensation to the Department of Labor for each affected person. . Training requirements may also be met if efforts have been made to meet them or if a $50/hour non-compliance fee has been paid to the Finance Department. Both penalties increase if the requirements are not followed.[15]

ITC and PTC offer additional credits in addition to the credits for which the program is eligible based on their performance requirements.

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To qualify for the domestic content bonus, all steel and steel products [16] must be made in the United States, and a “required percentage” of the total cost of manufactured products (including parts) of equipment must be produced or manufactured in the United States. The percentage is calculated by dividing the price of all household products and components by the total price of all manufactured goods.

Projects that meet the building minimum[17] can increase 10 percentage points in the ITC value (for example, an additional 10% to 30% ITC = 40%), a 10 percent increase in PTC value (eg, an additional 0.3¢/kWh for 2.75¢/kWh).

The percentage required for manufactured goods will start at 40% for all projects that begin construction before 2025, increasing to 45% for projects that begin construction in 2025, 50% for projects that begin construction in 2026, and 55% for projects that begin construction after 2026 .[18] ]

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On May 12, 2023, the IRS issued guidance on the home content bonus. As part of the guidance, the IRS provides a non-exclusive list of solar PV steel products, construction products, and construction product components that taxpayers rely on for classification purposes. These are:

The May 12 guidance further explains how to classify a product as domestic or non-U.S. build, and helps determine whether a project should be included in the in-house content portfolio. Under the new guidelines, the entire cost of a manufactured product is classified as domestic if it is manufactured in the United States and all of its components are American. However, it does not take into account the origin of its sub-components. For example, the origin of a PV cell is considered because it is part of a PV module, but the origin of the PV wafer used to make the PV cell is not considered. If the product—one or more of its components—is manufactured or taken outside of the United States, the product is considered a “non-U.S. manufactured product.” -building or mining, but not working to produce the product, can be included for the purpose of meeting the financial requirements of the village.

The guidance also states that only reasonable costs, as defined in § 1.263A-1(e)(2)(i), are paid or paid by the manufacturer to produce the product. make it into the calculation. Direct costs are defined as direct labor costs and direct material costs, [19] but do not include indirect costs incurred by the manufacturer, such as electricity, depreciation, repairs and maintenance, gross cost and profit (i.e. direct costs do not include all costs incurred in the production of the product and may not represent the cost of the manufactured product paid by the customer taxes).

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The following example, adapted from an IRS guide, shows how to calculate the percentage of domestic content for a project:

The taxpayer must submit to the IRS a statement indicating that each eligible project that the taxpayer claims has sufficient household income meets the requirements for iron, steel, and manufactured products and keep records to support this claim.

This guidance will remain in effect until 90 days after the publication date of the next proposed domestic regulation (no publication timeline for future legislation has been provided).

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Social programs are eligible for a 10 percent increase in the ITC value (eg, an additional 10% for a 30% ITC = 40%), a 10 percent increase in the PTC value.[21] more information can be found in the latest instructions from the Ministry of Finance and their map.

Low-income financing is only available for projects using the ITC with a target of 1.8 GWdc per year. This bonus provides projects below 5 MWac:

The program cap of 1.8 GW is allocated to projects by the IRS, which can carry forward unused annual allocations for three years.

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The application period will be 60 days (an application date has not yet been announced), after which the application process will remain open if the category falls within

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